The government of BC, the Canadian province where I live, just released a new budget which, among other things, raises tax on high incomes. Here is an overview. The top marginal tax on incomes over C$220,000 goes from 16.8% to 20.5%. This is just provincial tax; what with the Feds, the total top marginal rate is now 53%. Not everyone is delighted. For example Garth Turner, finance/real-estate blogger, who emits a howl of right-wing grief. I’m comfortable speaking about this since I’m personally affected.

[These days, a Canuck buck is worth about $0.75 American.]

It’s worth noting that our province is led by the New Democratic Party (everyone says “NDP”) who are Social Democrats; by and large pretty moderate by world standards. On the American spectrum they’re red-toothed commies; not too far off what Bernie Sanders would like to see.

Numbers · Let’s do some math, OK? Garth Turner points out how awful this will be for people living in super-expensive Vancouver and making a paltry $250K. Hmm, the marginal increase is 3.7% on income over $220K. So those poor $250K people are going to be paying an extra $1110/year. Garth also excerpts a letter from an aggrieved doctor’s husband who says they’ll be paying an extra $1K a month; by my arithmetic the doctor’s making over $540K taxable, thus taking home over $250K, ignoring the tax dodges available to the self-employed, then there’s the husband’s income. Maybe I’m missing something, but neither of these calculations yield what feel to me like lifestyle-changing numbers.

Side-note: I don’t want to diss Garth too much because he’s a really excellent writer on personal finance in general and real-estate in particular; if you’re in Canada and have money to invest you should totally read him. Also he’s funny and runs cute dog pictures. He becomes less interesting as he veers into overly-predictable right-wing tax-grouch tropes. And, disclosure: I’m a customer.

Saving and spending · Here’s the thing: A high proportion of people subject to the tax hike are taking home more than they need to live on, so the effect of this move is that their savings (and wealth) will grow more slowly. Most such people retire with enough to live on, and are in their forties or older. So the tax hike won’t result in any short-term spending decreases to speak of, but starting say ten years from now, a demographic of well-off retirees will have a little less to pump into that future economy.

And those slightly-smaller savings, what about them? They join a world-wide glut of capital, surging around looking for a decent return. Plenty will look for it outside Canada, or in ventures where most of the profits go to money people.

On the other hand, the extra $200M or so a year this tax maneuver pulls in will all get spent by the government, the vast majority in paychecks to middle- and working-class civil servants and contractors, who will in turn spend almost all of it in the next twelve months right here in BC. Maybe I’m missing something, but this policy feels like an economic win/win. The only losers are one-percenters like me; modestly, a decade or two from now. Maybe I’ll only be able to vacation once a year.

Or is that kind of thinking dangerously socialist? Here’s some data from The Economist: Wage gains for low earners have helped sustain America’s economic expansion. It’s data-rich and convincing. Inequality not only sucks, it’s bloody inefficient and generally bad for the economy.

In fact, redistributionist policies might improve the economy enough that the return on my savings will make up for their slightly smaller size.

Conclusion · Raise the minimum wage and the marginal tax rates on people like me. Both as a left-winger and an investor, I approve.



Contributions

Comment feed for ongoing:Comments feed

From: Nick Adams (Feb 20 2020, at 06:24)

Thanks Tim. There are more of us than there are the tax-complainers, but at least here in the states, they seem to get all of the attention and airtime.

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From: John Cowan (Feb 20 2020, at 09:07)

People don't come into divorce court to explain that overall they are getting along very nicely. Overall, it is those who are being hurt (or think they are, even if the economics says otherwise) who make most of the noise.

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From: Jesse (Feb 21 2020, at 09:46)

I get it, but would love it if CRA was able to execute more cleanly.

I suspect that fixing our tax residency system to ensure that people who live here, and benefit from social services, also pay tax on their worldwide income would result in more government revenues. That being said, I'll get by.

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From: Rob (Feb 22 2020, at 10:34)

Those extra taxes should not only be seen as noblesse oblige, but as you point out, also as an investment in and of themselves, to grow the economy and have some water lift all the boats.

But also, the way things are going, they should also be seen by a prudent investor as an insurance policy.

Like, life insurance. For the percenters.

Just sayin.

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